More Pay-TV Consolidation? Dish Said to Approach DirecTV About Merger

Satellite Still Growing but Pay-TV Ecosystem Facing New Challengers

Dish Network Chairman Charlie Ergen recently contacted DirecTV CEO Mike White to discuss a merger of the two satellite TV companies, according to several people with knowledge of the matter.

Mr. Ergen made the approach in response to Comcast Corp.'s plan to buy Time Warner Cable for $45 billion, one of the people said, asking not to be identified discussing confidential information. Mr. White is reluctant to push forward with formal talks out of concern regulators may block the deal because the two companies directly compete with each other, another person said.

DirecTV is the largest U.S. satellite-TV operator, with about 20 million paying subscribers. Dish is No. 2 with about 14 million subscribers, and also has a spectrum portfolio that may be valued at almost $26 billion, according to Bloomberg Industries. Dish has said it remains open to all options to monetize the U.S. airwaves, including building its own network or teaming up with an existing carrier, such as Verizon Communications Inc. or AT&T.

"Given the rapidly changing industry dynamics, everyone should be talking to everyone, and if you're not you might be left behind," said Walt Piecyk, an analyst with BTIG. "I highly doubt that DirecTV is the only company that Ergen has spoken with. This should serve as a reminder to AT&T and Verizon that a strategic asset has other options that could make Dish un-buyable in the future."

A deal may be more likely to pass after the current administration departs, one person said. The key to a deal being approved is how regulators view the market, another person said. If video competition is extended to online services, such as Netflix, a deal could pass, the person said.

Even if regulators allow Comcast's acquisition of Time Warner Cable, DirecTV management doesn't see the cable deal as a proxy for an approval of deal with Dish, said another person. DirecTV and Dish's 2002 attempt to merge was blocked by regulators.

Discussion of a deal is no surprise, James Ratcliffe, an analyst at Buckingham Research Group, wrote in a note after the report. "Ergen has made it clear in the past that he believes a combination with DTV would create significant value (and we agree), so the fact that he approached DTV CEO Mike White wouldn't surprise us." Still, Mr. Ratcliffe wrote, "we remain skeptical" because of prospects for a "difficult regulatory approval process."

"There is obviously a business case that makes a lot of sense for consolidation in the satellite industry," Mr. Ergen said in November, before the Comcast-Time Warner Cable deal was announced. "You're going to see consolidation, maybe first in the cable industry," he said.

Although Mr. White is hesitant to pursue a deal, he hasn't ruled it out entirely, one person said. The talks are being conducted at a senior level with no official process yet under way, several people said. Mr. White has been openly more wary about a possible combination.

"While I certainly believe our industry has changed substantially and I believe there are a lot of reasons why consolidation in our industry would be pro-consumer to try and improve the balance between programmers and distributors, you still have to go sell that in Washington," White said in December.

Darris Gringeri, a spokesman for DirecTV, declined to comment, as did Bob Toevs, a spokesman for Dish.